China is dropping some of the most repressive aspects of its Zero Covid policy, but the country may have already done irreparable damage to its manufacturing and export industry.
On the surface, China’s Zero Covid policy appears to have been an unmitigated success.
China, a country of 1.5 billion, has reported a little more than 5,000 total deaths and 1.79 million covid infections since the official start of the pandemic in the first quarter of 2020, according to Our World in Data.
Comparatively, the U.S., a country of 330 million, has reported nearly 1.1 million deaths and almost 100 million cases since the start of the pandemic.
While there have been numerous questions about the accuracy of Beijing’s official covid numbers, the policies the country enacted to combat the disease have seemingly spared the country’s citizens from the same fate of at least a million Americans during the pandemic.
The devil of course is in the details, and China’s covid lockdown was one of the most repressive responses in the world.
So much so that the citizens of China, who, by Western standards at least, are some of the most repressed and surveilled in the world, have risen up against the Chinese Communist Party.
After weeks of protest, on Dec. 7 the famously obstinate CCP is finally relenting and changing course on its Zero Covid policy.
But the damage to the country’s manufacturing sector, which for decades has been the most robust in the world, may be irreversible.
Manufacturing Post Zero Covid
China’s unprecedented ascent from third-world country to the largest economy in the world was built on the back of its manufacturing sector.
Country’s around the world turned to China for their cheap manufacturing needs. No country has relied more on China for its manufacturing needs than the U.S. with China exporting more than $577 billion in goods (18% of total exports) to the U.S. in 2021 alone.
But the recent lockdowns have once again placed a spotlight on the Foxconn facility in the country that manufactures the bulk (70%) of iPhones sold by (AAPL) – Get Free Report.
Over the weekend, the Wall Street Journal reported that Apple has accelerated its plans to shift some production of its hardware outside of China, instead opting for manufacturing rivals in India and Vietnam.
Disruptions at the Foxconn facility tied to the Zero Covid lockdowns and issues with worker pay have led to strikes at the facility.
According to Bloomberg, Apple is expected to produce 3 million fewer iPhones than previously anticipated as it contends with ongoing lockdowns in the region.
But Apple is just the tip of the iceberg.
According to CNBC, demand from the U.S. for Chinese manufacturing has dropped 40% while container volume is down 21% since August.
In the meantime, trade between the U.S. and European Union has increased, according to the same report, with German exports to the U.S. rising 50% year over year in September.
Germany’s mechanical engineering sector boosted exports to the U.S. almost 20% year over year during the first three quarters of 2022.
Zero Covid’s Legacy
China’s decision to lift some of the most severe Zero Covid policies could be due to the two-pronged response from both the business sector and the citizen uprising the government has worked so hard to quell.
To appease the mob, China says that people with covid can now isolate at home, rather than being hauled off to state run facilities if they have mild or no symptoms.
Citizens will also no longer need to show negative tests for most venues, and will be allowed to travel more freely inside of the country.